The massive capital expenditure for AI infrastructure will not primarily come from traditional unsecured corporate credit. Instead, a specialized form of private credit known as asset-based finance (ABF) is expected to provide over $800 billion of the required $1.5 trillion in external funding.
Contrary to fears of a frothy market, current M&A and LBO activity is more conservative than the 2007 era. A key difference is that today's deals involve a substantially higher amount of equity contribution from buyers, making them structurally less risky than those seen before the financial crisis.
The current AI infrastructure build-out is structurally safer than the late-90s telecom boom. Today's spending is driven by highly-rated, cash-rich hyperscalers, whereas the telecom boom was fueled by highly leveraged, barely investment-grade companies, creating a wider and safer distribution of risk today.